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The tax rebate trade-off

Author

Listed:
  • Salvatore Ciucci

    (Dipartimento di Economia, Università degli Studi della Campania “Luigi Vanvitelli”)

Abstract

This study extends the theory of tax evasion by presenting a model of collaborative tax evasion between buyers and sellers. Buyers differ only in their level of tax morale, and tax evasion occurs when the seller fails to issue a receipt for the transaction. To counteract this, the government can disrupt the collusion between sellers and buyers by offering a tax rebate to buyers who request and retain the transaction receipt. The theoretical findings show that the tax rebate introduces a policy trade-off for the government between aggregate quantity and tax revenue. Furthermore, the marginal effect of the rebate on aggregate quantity, tax revenue, and social welfare is ambiguous. This study provides a theoretical foundation for understanding and managing the economic inefficiencies that may arise from tax rebate policies.

Suggested Citation

  • Salvatore Ciucci, 2025. "The tax rebate trade-off," Working Papers 2025.26, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2025.26
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    Keywords

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    JEL classification:

    • H00 - Public Economics - - General - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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